Apparently, the SEC’s buyout offer to its employees has been remarkably successful – perhaps a little too successful. This excerpt from a Politico article indicates just how big the voluntary exodus of SEC staffers may turn out to be:
Hundreds of SEC staffers have agreed to voluntarily leave the agency, according to three people familiar with the matter, an exodus that stands to substantially shrink the ranks of the top Wall Street regulator.
Through a mix of different programs, including the SEC’s recently offered $50,000 buyout, more than 10 percent of the agency’s roughly 5,000-person staff is expected to leave in the coming weeks and months, said the people, who were granted anonymity to discuss the private information.
One of the people said they expect the tally will be close to if not more than 15 percent, or 750 people, as the $50,000 offer is still available to staff who voluntarily resign or retire through the end of Friday.
That’s a very big hit, and to make matters worse, Politico says these departures involve some of the agency’s most experienced staff members. Of course, all this is happening before DOGE shows up to swing a scythe through Elon Musk’s favorite federal agency.
The current commissioners have stressed that they want to make the SEC more responsive to public companies and those seeking to raise capital. For example, Commissioner Peirce has said that the SEC wants Corp Fin and OCA to engage more with public companies on difficult disclosure issues, and to communicate early and often on the timing of reviews of registration statements in order to permit issuers to have increased confidence in their offering timelines.
Those are great goals, but the agency needs lots of experienced people around if it is going to have any hope of achieving them. Right now, it looks like whether the SEC will have enough of those people to do that is an open question. In fact, it’s fair to ask just how limited the SEC’s capabilities might be once Musk finishes with them. That’s a question that Hunton’s Scott Kimpel addressed last year, and his answer isn’t comforting to companies that need guidance on difficult disclosure issues or that hope to navigate the review process for offerings without significant delay.
We’ll have to see how this all plays out, but the attrition at the SEC is a source of legitimate concern for public companies and the lawyers who advise them. It’s also incredibly ironic to think that an agency that actually makes money for the federal government may see budget cuts that jeopardize its ability to accomplish the laudable objectives that its commissioners have laid out.
The only silver lining for members of TheCorporateCounsel.net is that whatever happens at the SEC, at least we have each other – just like we have for the past 50 years.
Every day, I’m awed by the willingness of the best and brightest lawyers in the country to share their insights with our community. Their expertise has allowed us to develop the high-quality resources that our members rely upon – and that they may need to rely upon even more in the days to come. If you’re not a member, consider joining today by subscribing online, emailing us at sales@ccrcorp.com or calling us at 800-737-1271.
Under the JOBS Act, emerging growth companies are given a phase-in period to come into full compliance with certain disclosure and accounting requirements under SEC rules. A recent WilmerHale memo (p. 24) looks at the extent to which EGCs are electing to take advantage of the relief from these requirements during this phase in period.
The memo says that the percentage of EGCs opting to take advantage of the ability to submit confidential draft registration statements and to provide reduced executive compensation disclosure has remained consistently high. In contrast, practices with respect to relief available for financial disclosure and changes in accounting principles have varied over the years. This excerpt addresses how and why practices with respect to these items have varied:
– Reduced Financial Disclosure. Overall, the percentage of EGCs electing to provide only two years of audited financial statements has increased dramatically, from 27% in 2012 to 98% in 2024. From the outset, life sciences companies—for which older financial information is often irrelevant—were likely to provide only two years of audited financial statements, with the percentage choosing this option reaching 100% each year since 2022.
Technology companies—which generally have substantial revenue and often have profitable operations—were slower to adopt this practice, but the percentage providing only two years of audited financial statements grew from 22% in 2012 to 91% in 2022 and 100% in both 2023 and 2024.
– Accounting Standards Election. Through 2016, the vast majority of EGCs opted out of the extension of time to comply with new or revised accounting standards. At that time, the decision appears to have been motivated by the uncertain value of the deferred application of future, unknown accounting standards and concerns that a company’s election to take advantage of the extended transition period could make it more difficult for investors to compare the company’s financial statements to those of its peers.
Starting in 2017, a major shift occurred, with the percentage of EGCs adopting the extended transition period jumping from 11% through 2016 to 50% between 2017 and 2019 and to 93% between 2020 and 2024. This trend appears to have been motivated by the desire of many EGCs to delay the application of new revenue recognition and lease accounting standards (which became mandatory for public companies in 2018–2019) or, at a minimum, to take more time to evaluate the effects of these standards before adopting them.
We’ve posted the transcript for our recent webcast – “Director Independence: Recurring Issues and Recent Developments.” Skadden’s Caroline Kim, Gunster’s Bob Lamm, Davis Polk’s Kyoko Takahashi Lin, and Morris Nichols’ Kyle Pinder joined Meredith to discuss a variety of topics relating to director independence. Here’s an excerpt from Kyle’s discussion of some of the independence implications of Delaware’s SB 21, which became law on Tuesday:
Amended Section 144 also lessens the burden or heightens the presumption of independence for directors of public companies. For a public company director, if the board determines he or she is independent for stock exchange purposes from the company, then that presumption is only rebuttable if a stockholder can allege substantial and particularized facts showing that the director is actually interested or not independent. Where the transaction involves a controlling stockholder, the board needs to determine that the director is independent from the controlling stockholder under the exchange rules, but you treat the controlling stockholders as if it were the issuer for applying that analysis.
One other change that provides clarity is that in all cases, just being a designee or a nominee of a person does not render you not independent of them. There has been Delaware case law going both ways on that.
Then the last big point on Senate Bill 21 is that it would set an ownership floor for determining whether a stockholder or a group is a controlling stockholder. As amended, a stockholder or group of persons cannot be deemed to be a controlling stockholder or a control group unless they have equity ownership of one-third or more of the total outstanding voting power of the company.
The Senate Banking Committee has scheduled Paul Atkins’ confirmation hearing for tomorrow at 10:00 am Eastern. While Atkins is widely expected to be confirmed, it looks like he should nevertheless be prepared to heed Bette Davis’s famous warning to “Fasten your seatbelts. It’s going to be a bumpy night.”
That’s because earlier this week, Sen. Elizabeth Warren (D. Mass) lobbed in a 34-page letter raising questions about Atkins’ record and potential conflicts of interest. After offering perfunctory congratulations on his nomination, Sen. Warren got quickly to the point:
While you have extensive experience in financial services and capital markets, I have concerns about your record. You have been involved as a regulator or key adviser in historic failures of the financial system, including as an SEC Commissioner in the years before and during the 2008 financial crisis and as an adviser to the cryptocurrency platform FTX before and during its sudden collapse in 2022. You have also advocated for weaker SEC rules, including for Chinese accounting companies in the United States, at your corporate advisory firm. You were an architect of Project 2025 and received “special mention” for your extensive contributions.
You also have significant potential conflicts of interest through your work on behalf of corporate interests—and a long record of advocating for weaker protections for investors and weaker rules to prevent wrongdoing by giant corporations. This record raises questions about your judgement and your ability to serve as an effective SEC Chair if you are confirmed.
You can just feel the love, can’t you? Anyway, Sen. Warren follows this up with 32 pages of interrogatories questions on these and other topics that she asks Atkins to be prepared to respond to during tomorrow’s confirmation hearing (mind you, the letter was sent on Monday). She also asks him to provide written responses to these questions prior to the Senate Banking Committee’s vote on his nomination. I’m betting this will make for some great cable news soundbites, which after all is the point of a confirmation hearing, right? Fasten your seatbelts indeed.
Last week, Corp Fin issued a statement clarifying the Staff’s position that certain crypto-related mining activities do not involve the offer or sale of securities for purposes of the federal securities laws. This statement descends almost immediately into jargon that’s pretty incomprehensible to those of us who aren’t among the crypto cognoscenti (or at least to me). Fortunately Mayer Brown posted a blog about the statement that is a little easier to understand. This excerpt summarizes the scope of the Staff’s statement:
The statement focuses on the mining of crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless, proof-of-work (“PoW”) network, such as Bitcoin and Dogecoin, and are used to participate in, and/or are earned for participating in, such network’s consensus mechanism or otherwise used to maintain and/or earned for maintaining the network’s technological operation and security (such crypto assets, “Covered Crypto Assets” and, such mining activities on a PoW network, “Protocol Mining”). Importantly, the statement is narrowly tailored and only addresses certain types of mining activities. The statement is not dispositive as to whether any specific mining activity involves the offer or sale of a security, which the Division states is a fact-specific inquiry.
The Staff’s position is based on its conclusion that the Covered Crypto Assets aren’t securities under the Howey test, and is limited to (1) mining Covered Crypto Assets on a PoW network; and (2) the roles of mining pools (which involve miners pooling computational resources to increase their chance of success) and pool operators involved in the Protocol Mining process.
Commissioner Crenshaw issued a dissenting statement in which she criticized the logic underlying Corp Fin’s statement and contended that it doesn’t really move the needle in terms of “clarifying” its position, since it still requires everyone to look to the specific facts and circumstances of the particular situation in order to determine whether a security is involved in mining activities.
If watching the Atkins confirmation hearing isn’t your cup of tea, the SEC is hosting a roundtable tomorrow on artificial intelligence in the financial industry. The event includes panels on the benefits, costs, and uses of AI in the financial industry, fraud, authentication, and cybersecurity, AI governance and risk management, and what’s next/future trends. The roundtable will be held at the SEC’s headquarters starting at 9:00 am Eastern and a link to watch the event will be available on the SEC’s website.
It looks like the seemingly endless back-and-forth concerning the Corporate Transparency Act’s reporting requirements may finally be coming to rest. Earlier this month, Meredith blogged about Treasury’s announcement that it would not enforce any penalties or fines against U.S. citizens or domestic companies under the CTA and would propose a rule imposing reporting obligations only on foreign companies. On Friday, FinCEN announced that an interim final rule (IFR) has been adopted implementing this revised reporting regime. Here’s an excerpt from the press release summarizing the rule:
In that interim final rule, FinCEN revises the definition of “reporting company” in its implementing regulations to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. State or Tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN also exempts entities previously known as “domestic reporting companies” from BOI reporting requirements.
Thus, through this interim final rule, all entities created in the United States — including those previously known as “domestic reporting companies” — and their beneficial owners will be exempt from the requirement to report BOI to FinCEN. Foreign entities that meet the new definition of a “reporting company” and do not qualify for an exemption from the reporting requirements must report their BOI to FinCEN under new deadlines, detailed below. These foreign entities, however, will not be required to report any U.S. persons as beneficial owners, and U.S. persons will not be required to report BOI with respect to any such entity for which they are a beneficial owner.
If you’re unlucky enough to be a foreign reporting company, well, the U.S. appears to be looking to acquire some new territory, so you may want to ask your home jurisdiction to check out the possibility of becoming part of ‘Murica. Short of that, the announcement says that you’ll be subject to the following reporting deadlines:
– Reporting companies registered to do business in the United States before the date of publication of the IFR must file BOI reports no later than 30 days from that date.
– Reporting companies registered to do business in the United States on or after the date of publication of the IFR have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.
This Seyfarth memo summarizes the guidance contained in the two documents and identifies several specific areas of potential concern, including diverse interview slate policies, employee resource groups with membership restrictions, segregated training and programming, and mentoring or networking programs limited to members of protected classes.
It also notes that the EEOC guidance emphasized that no general business interest in diversity will justify race-motivated employment actions, and also clarified the EEOC’s position on how Title VII applies to other aspects of workplace DEI initiatives and practices. Here’s what the memo has to say about the EEOC’s positions on “reverse discrimination” and mixed motives:
Broad Application of Title VII and Rejection of the Concept of “Reverse” Discrimination: The EEOC’s technical assistance confirms the well-understood principle that Title VII’s protections “apply equally to all workers” and that “different treatment based on race, sex, or another protected characteristic can be unlawful discrimination, no matter which employees or applicants are harmed.” The EEOC rejects the concept of ‘reverse discrimination,’ stating that “there is no such thing as ‘reverse’ discrimination; there is only discrimination.”
Mixed Motive: The EEOC’s technical assistance confirms its position that the mixed-motive standard under Title VII applies fully to DEI-related employment decisions. The document states plainly: “An employment action still is unlawful even if race, sex, or another Title VII protected characteristic was just one factor among other factors contributing to the employer’s decision or action.” It explicitly rejects the argument that discrimination occurs only when protected characteristics are the “but-for” or deciding factor, making clear its position that even partial consideration of race, sex, or other protected characteristics in DEI initiatives can create Title VII liability.
The memo says that the EEOC’s guidance likely foreshadows its upcoming enforcement initiatives, and recommends that companies whose current or recent DEI practices may run afoul of this guidance should consider conducting privileged reviews of those initiatives.
Hey gang, our colleague Meaghan Nelson continues to blog up a storm over on “The Mentor Blog,” which is available to members of TheCorporateCounsel.net. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply clicking the link on the left side of the blog and entering their email address. Here are some of Meaghan’s recent entries:
You’ll love Meaghan’s stuff – she brings a unique perspective to our team and is confronting many of the same challenges a lot of our members face in juggling a career in corporate law with the responsibilities of a young family. She’s also very funny. I don’t usually pat myself on my back for my brilliant ideas (okay, that’s a lie), but I’m particularly pleased with myself for deciding to resurrect The Mentor Blog and to put Meaghan at its helm. It’s never been better!
One of the things that’s differentiated the AI boom from the dotcom extravaganza of the 1990s is the fact that most of what’s been going on in AI has been taking place in large, well-established public companies like NVIDIA. So far, we haven’t seen startup AI players try to tap the public capital markets through IPOs, but CoreWeave’s recent Form S-1 filing suggests that may be about to change.
CoreWeave is a cloud-computing company based in Livingston, New Jersey, that specializes in providing cloud-based graphics processing unit (GPU) infrastructure to artificial intelligence developers (okay, so I lifted that verbatim from Wikipedia – it’s a lot less fizzy than what’s in the S-1 and I can almost understand it). Anyway, the company is one of the fastest growing AI cloud infrastructure providers, and over the past three years, its revenue has risen from less than $16 million to nearly $2 billion. CoreWeave’s losses have grown even more impressively over that period, rising from $31 million in 2022 to $937 million in 2024 – which, with apologies to Gilbert & Sullivan, makes it the very model of a modern IPO candidate.
Staggering losses aside, this IPO filing is a lot less silly than what we’re accustomed to seeing from the previous generation of Unicorns. There’s no goofy mission statement or founder’s letter or unintentionally hilarious (see 2nd blog) related party transactions disclosure. Instead, as befits something new under the sun, the prospectus kicks off with four pages of “Selected Definitions” designed to acquaint investors with the jargon-rich world of AI cloud computing and includes nearly 60 pages of “Risk Factors.” While most of what’s in the Risk Factors section is pretty much what you’d expect, this one on negative publicity caught my eye because of the way they hit the whole “hypothetical risk factor” issue head on in the language I’ve highlighted below:
If negative publicity arises with respect to us, our employees, our third-party suppliers, service providers, or our partners, our business, operating results, financial condition, and future prospects could be adversely affected, regardless of whether the negative publicity is true.
Negative publicity about our company or our platform, solutions, or services, even if inaccurate or untrue, could adversely affect our reputation and the confidence in our platform, solutions, or services, which could harm our business, operating results, financial condition, and future prospects. Harm to our reputation can also arise from many other sources, including employee misconduct, which we have experienced in the past, and misconduct by our partners, consultants, suppliers, and outsourced service providers. Additionally, negative publicity with respect to our partners or service providers could also affect our business, operating results, financial condition, and future prospects to the extent that we rely on these partners or if our customers or prospective customers associate our company with these partners.
Another thing about the offering that’s worth noting – it doesn’t look like multi-class structures are going the way of the Dodo anytime soon. CoreWeave has Class A, Class B, and Class C shares, and another high-profile IPO filing from last week, StubHub, has Class A & Class B shares. Finally, these filings include a bit of good news for embattled Delaware – both of these companies are incorporated there.
